The University of Southampton
University of Southampton Institutional Repository

LTV policy as a macroprudential tool and its effects on residential mortgage loans

LTV policy as a macroprudential tool and its effects on residential mortgage loans
LTV policy as a macroprudential tool and its effects on residential mortgage loans

Since the early 2000s, macroprudential policy has increasingly become part of the regulatory and supervisory framework. Likewise, the housing market has been at the center of the debate on systemic financial risk prevention. Among macroprudential tools, the purpose of the loan-to-value (LTV) ratio is to constrain mortgage loan creation. This paper is unique in that it analyzes the effectiveness of LTV on mortgage lending moderation using a large sample of more than 4000 banks from 46 countries. The analysis suggests mortgage loans have been successfully curbed in countries with a LTV policy. Size and non-performing loans are the two key characteristics to the effectiveness of LTV. When nonlinearities are considered, the average effect of LTV can be very large; however, it becomes much less effective with large banks and banks with bad loans. Our results suggest the inclusion of other macroprudential tools may have complementary effects to LTV, and for large size banks in particular.

Financial stability, Macroprudential policy, Mortgage credit creation
1042-9573
89-103
Morgan, Peter J.
dc6fda87-18e2-42c1-8ddd-636e069721b7
Regis, Paulo José
d696452e-72ef-48bc-9409-80996e297ca7
Salike, Nimesh
64467ab4-1420-426d-87d2-1f6cff7501af
Morgan, Peter J.
dc6fda87-18e2-42c1-8ddd-636e069721b7
Regis, Paulo José
d696452e-72ef-48bc-9409-80996e297ca7
Salike, Nimesh
64467ab4-1420-426d-87d2-1f6cff7501af

Morgan, Peter J., Regis, Paulo José and Salike, Nimesh (2019) LTV policy as a macroprudential tool and its effects on residential mortgage loans. Journal of Financial Intermediation, 37, 89-103. (doi:10.1016/j.jfi.2018.10.001).

Record type: Article

Abstract

Since the early 2000s, macroprudential policy has increasingly become part of the regulatory and supervisory framework. Likewise, the housing market has been at the center of the debate on systemic financial risk prevention. Among macroprudential tools, the purpose of the loan-to-value (LTV) ratio is to constrain mortgage loan creation. This paper is unique in that it analyzes the effectiveness of LTV on mortgage lending moderation using a large sample of more than 4000 banks from 46 countries. The analysis suggests mortgage loans have been successfully curbed in countries with a LTV policy. Size and non-performing loans are the two key characteristics to the effectiveness of LTV. When nonlinearities are considered, the average effect of LTV can be very large; however, it becomes much less effective with large banks and banks with bad loans. Our results suggest the inclusion of other macroprudential tools may have complementary effects to LTV, and for large size banks in particular.

This record has no associated files available for download.

More information

Accepted/In Press date: 17 October 2018
e-pub ahead of print date: 23 October 2018
Published date: 1 January 2019
Keywords: Financial stability, Macroprudential policy, Mortgage credit creation

Identifiers

Local EPrints ID: 434680
URI: http://eprints.soton.ac.uk/id/eprint/434680
ISSN: 1042-9573
PURE UUID: 34ab1327-76d3-4ba2-aecd-b0c291a3bcd2
ORCID for Paulo José Regis: ORCID iD orcid.org/0000-0002-3256-464X

Catalogue record

Date deposited: 04 Oct 2019 16:30
Last modified: 28 Apr 2022 02:27

Export record

Altmetrics

Contributors

Author: Peter J. Morgan
Author: Nimesh Salike

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×